A Reconsideration of Income Compensation Functions in Social Welfare Theory

Abstract

In his book “Measuring Economic Welfare: New Methods” [8] George W. Mc Kenzie elaborates the theory and applications of income compensation functions in social welfare theory. Unlike utility functions income compensation functions are in principle observable. For this reason the aggregation of income compensation functions m(p,x) to social welfare functions like

$$ \Omega ({x^1},\, \ldots \,,\,{x^k})\, = \,W(\{ {m^i}(p^\circ ,\,{x^i})\mathop \} \limits_{i = 1}^k ),$$

where $W:\,{\mathbb{R}^k}\, \to \,\mathbb{R}$ is a Bergson-Samuelson social welfare function is an aggregation of observable quantities.